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Alaska Senate passes measure to move gas pipeline forward

JUNEAU --The Parnell administration's natural gas proposal, which supporters say could lead to the biggest infrastructure project ever built in Alaska, cleared a divided state Senate Tuesday on a 15-5 vote over the opposition of four Anchorage Democrats and a single Republican.

The liquefied natural gas measure was debated for about five hours Tuesday with Democrats proposing 16 amendments, all of which failed to varying degrees, including one that would have made Alaska a majority owner of the ambitious project.

Two Democrats who organize with the Republicans, Donny Olson of Golovin and Dennis Egan of Juneau, also voted yes. So did Democrat Lyman Hoffman of Bethel, who succeeded in amending the bill in the Finance Committee to create a fund that would draw on natural gas revenues to get affordable energy to rural Alaska. Both Stevens and Olson said that provision was key to their support.

"What I see in this bill is something that provides for hope," said Olson, who represents a large rural district in western and northern Alaska.

The legislation, Senate Bill 138, creates a framework for a three-part project that the Parnell administration says is designed to bring Alaska's vast reserves of natural gas to commercial markets in Asia.

The components are a North Slope treatment plant, an 800-mile gas pipeline and a natural gas liquefaction plant and export facility planned for Nikiski.

"It is a mega-project," said Fairclough, who took the lead in arguing for the administration's bill. "You could even call it three mega-projects inside of the one mega-project."

The proposal makes the state a partner with the North Slope's major oil producers -- BP, ExxonMobil and ConocoPhillips -- and pipeline company TransCanada Corp. in a project that would cost $45 billion to $65 billion. The state would be a direct investor with a 25 percent share -- although it could turn over all or a majority of its share of the pipeline and a North Slope gas treatment plant to TransCanada.

That element drew much of the criticism.

Opponents said the state is giving away too much. Wielechowski questioned whether the measure will ever lead to a gas pipeline, which has been dreamed about for decades.

Stedman said in a written statement that he opposed the legislation largely because the state is handing over its interests in the pipeline and gas plant to TransCanada.

Fairclough said the bill was a well-studied proposal. Senators held 23 hearings on the administration's bill in two committees, and the complex bill grew to 56 pages, she said.

The approach is different, she said. "Some say it's radical."

Allowing TransCanada to take over at least part of the state's share of the pipeline greatly reduces the amount of money the state must invest, Fairclough said.

Anchorage Democrats targeted that aspect.

Under a complex agreement the state already signed with TransCanada, the state would turn over to TransCanada its 25 percent share of the pipeline, but then could buy back up to 40 percent of it.

"I wonder if most Alaskans know they are only getting 40 percent of a quarter of this pipeline," said French, the minority leader.

He proposed "the Wally Hickel amendment," referencing the late governor's promotion of Alaska as an owner state. Under that amendment, the state would be majority owner of the LNG project.

"Let's don't be the caboose on the train. Let's be the conductor," he said.

Only the four Anchorage Democrats supported that proposal.

They also proposed ditching TransCanada outright -- a "divorce," French said. He argued natural gas for Alaskans would be cheaper under that scenario and said that an analysis by legislative consultant Roger Marks examining the relationship contained bombshells, including that the state would have to repay TransCanada millions and would bear the risk if the project collapsed in early years. Marks concluded that the arrangement essentially gives TransCanada a no-bid contract that could be worth billions, French noted.

The Marks report -- cited by several senators Tuesday -- never was presented to a Senate committee. Fairclough, who oversees the hiring of legislative consultants as the chairwoman of the Legislative Budget and Audit Committee, said during a break that Marks prepared the report, dated Feb. 18, to answer questions posed by Meyer, an Anchorage Republican who co-chairs the Finance Committee.

Senators also dueled over a separate analysis by another consultant, Rick Harper, that was just released. Fairclough noted that Harper called the administration's proposal "sophisticated, deliberative and reflective of a rapidly growing and evolving market for natural gas both domestically and internationally." But Democrats said he too raised serious concerns.

Among other efforts to remake the bill Tuesday, Gardner proposed a change so the state wouldn't have to repay TransCanada for its investment if the project failed due to an oil company pulling out.

Wielechowski tried to change the tax structure so that oil producers cannot deduct the costs of their work developing gas fields from their oil taxes. That could cost the state hundreds of millions a year -- on top of the oil tax cuts approved last year, he said.

Fairclough and other Republicans shot down every one of the Democrats attempts to reshape the legislation on the Senate floor.

McGuire said she was voting for the measure in part for the late U.S. Sen. Ted Stevens and wondered if he was listening. She remembered him testifying before a state Senate committee on an earlier gas pipeline project.

"The notion was we are going to get it no matter what," she said. "We are going to push these guys (oil companies) to a place, either you build it or we will. And I think we're doing that."

Wielechowski detailed Alaska's sometimes troubled relationship with the oil industry: the Exxon Valdez oil spill and subsequent lawsuits, disputes over the trans-Alaska pipeline's value that continue to this day, and leases that aren't being developed.

"I'm a little skeptical that things have changed all that much," he said. "Alaskans have been waiting for over 30 years for a pipeline. This bill does nothing more than create another study."

Just one amendment, pushed by Dunleavy, passed the Senate. It changed the name of Hoffman's new fund from the "rural capital energy fund" to the "Alaska affordable energy fund" to reflect that areas of Alaska outside of rural villages and hubs could benefit.

The natural gas proposal now heads to the state House, where the Resources Committee has already scheduled a hearing for Wednesday.